HOW DOES BANKRUPTCY AFFECT A BORROWER''S ELIGIBILITY FOR AN FHA MORTGAGE?

Bankruptcy has devastating credit consequences for up to 10 years. Fortunately, the impact diminishes as the years go by. Although a recent bankruptcy makes obtaining a mortgage difficult, you can eventually qualify for a Federal Housing Administration loan, referred to as an FHA loan. You'll need to wait at least two years after bankruptcy before you are eligible for an FHA loan.

General Time Requirements

According to the U.S. Department of Housing and Urban Development, (HUD), bankruptcy doesn't disqualify you from an FHA loan if two years have elapsed since the discharge date of the bankruptcy. This won't be the date you filed, but instead the date the court officially approved your petition for bankruptcy.

Additional Requirements

Time isn't the only requirement after bankruptcy. You'll need to establish good credit after filing bankruptcy or have chosen not to open new accounts and credit obligations. For example, if you decided to open a secured credit card to rebuild your credit, you'll need to ensure it is in good standing. If you decide to avoid taking on any debt or simply can't gain approval due to the bankruptcy, that's alright as well. The FHA won't punish you for choosing to remain debt-free after a bankruptcy.

Extenuating Circumstances

In some cases, FHA will consider you for approval after 12 months of filing bankruptcy. Although this is rare, it is sometimes acceptable if you can show the bankruptcy was caused by extenuating circumstances. For example, a medical condition that led to job loss may be classified as a circumstance beyond your control. You must also show a documented ability to maintain your financial affairs for at least one year after the bankruptcy discharge date.